Could you please tell me how the comapny is doing based on the following informa
ID: 2814833 • Letter: C
Question
Could you please tell me how the comapny is doing based on the following information
2: Please fill in the Ratios on page 2 of this assignment 3: Please type 1 paragraph describing what you learned from these ratios Balance Sheet (000) 2016 2017 40 900 AR 1,500 1,825 Current A. 2.280 2,765 2016 2017 Cash 30 Inv 750 0.4% 92% 18.3% 279910 0.0% 72190 100.0% 0.3% 73% 14.9% 225% 0.0% 775% 100.0% LT Assets 5,900 9,500 8,180 12,265 AP 720 1,250 8.8% 10.2% LT Debt 4,500 7,000 Total Debt 5,2208,250 55.0% 63.8% 0.0% 362% 100.0% 57.1% 67.3% 0.0% 327% 100.0% Equity 2,960 4015 8,180 12,265 Income statement(000) % 2016 2017 Sales 18,000 25,000 COGS 17,000 22,500 Gross Prof (EBITDA) 1,0002,500 -Depr100 200 EBIT 900 2,300 350 550 Taxable 550 1,750 -tax (34%), 187, 595 NI 363 1,155 2016 100.0% 94.4% 5.6% 0.6% 5.0% 1.9% 3.1% 1.0% 2.0% 2017 100.0% 90.0% 10.0% 0.8% 9.2% 2.2% 7.0% 2.4% 4.6% Other Data Price Number of Shares 10 1200 1200Explanation / Answer
Solution:
We can calculate the major financial ratios to understand the performance of the company.
Liquidity Ratio:
Current ratio = Current Asset / Current Liability
Ratio in 2016 = 2280/720 = 3.17
Ratio in 2017 = 2765/1250 = 2.21
This ratio is good as it is more than 1, and it means that company may not face liquidity issue as they have enough curent asset to cover the current liability.
Solvency Ratio:
Long term - Debt to equity
2016: Debt / Equity = 4500/2960 = 1.52
2017: Debt / Equity = 7000/4015= 1.74
The company has more debts as compared to equity. This ratio is reasonable as it is on higher side.
Efficiency Ratio:
Total asset turnover = Sales / total assets
2016 = Sales / total assets = 18000/8180 = 2.2
2017 = Sales / total assets = 25000/12265 = 2.03
This ratio looks good as they are able to generate 2 times sales as compared to assets.
Profitability ratio:
Net profit margin = 2% in 2016 and 4.6% in 2017, and these are low numbers
Gross Profit Margin= 5.6% in 2016 and 10% in 2017, again it is very low
Overall company is doing good if we see liquidity and efficiency ratio , while not doing good if we see the profitability and solvency ratio. So, We can rate the company average and they have to improve the gross margin as COGS is very high.